The real estate market in Ho Chi Minh City (HCMC) was severely affected due to the complicated developments of COVID-19 in 2021

Impact by COVID-19

In 9M21, the supply of real estate in Hanoi grew by a slight 7% YoY. Meanwhile, the real estate market in Ho Chi Minh City (HCMC) was severely affected due to the complicated developments of COVID-19 in 3Q21, causing all direct sales to be halted, except for two projects in the high-end segment that opened for sale online.

The total supply in the first nine months of the year decreased by 35% YoY as the supply in 3Q21 sank to the lowest level in the past three years. The bright spot is the high absorption rate of newly launched projects, at 96% in Hanoi and 120% in HCMC, as the market adapts to new sales methods. Selling prices continued to rise in both Hanoi (16% YoY) and HCMC (17% YoY). The property market showed signs of recovery after the social distancing measures were gradually eased from October when the pandemic was better controlled.

Investment highlights in 2022

Real estate demand is expected to rebound strongly thanks to infrastructure completion and low interest rates. KB Securities believed that real estate demand in 2022 would rebound positively thanks to the following:

First, a series of investment projects such as Long Thanh Airport, the North-South Expressway, metro lines, and road and bridge projects, along with the proposed plans, had a positive impact on the real estate market. These projects contributed to the rebound of the property market and boosted housing prices in these areas, thereby stimulating demand.

Second, the relatively low interest rates on home loans, along with preferential and support programs, helped promote the demand for loans to buy houses and invest in real estate.

According to KB Securities, supply in HCMC will rebound strongly once the pandemic is under control and the legal bottlenecks are removed as a result of new decrees and amendments to the investment and construction laws.It expects the market in the suburbs of HCMC and neighboring provinces will continue to boom, driven by the increasingly improved infrastructure and regional connectivity.

"Risks potential risks include: (1) The pandemic worsens, affecting the launch and sales of the projects; (2) Legal procedure often takes a long time, slowing down the process of approving and granting construction permits", KB Securities said.

Stock picks

Among real estate stocks, KB Securities recommended watching Vinhomes (VHM), Nam Long Group (NLG), and others. For VHM, it could continue to maintain its lead position in the segment of residential real estate targeting both the mid-and high-end markets for the period 2016-3Q21 with a market share of up to 25%, which is 3% higher than the business coming second.

In 2022, VHM will complete sales at two megaprojects, Ocean Park and Grand Park, and launch three new major projects, Wonder Park, Dream City, and Co Loa, with a majority of low-rise products having a high potential for price appreciation.The total value of new contracts signed in 2021 and 2022 is estimated at VND63 trillion (5% YoY) and VND73 trillion (16% YoY) respectively.

KB Securities expected that VHM would record a profit after tax (PAT) of VND31,214 billion (11% YoY) on revenue of VND80,480 billion (12% YoY) for 2021. These figures for 2022 should be raised to VND35,946 billion (15% YoY) and VND93,327 billion (16% YoY) respectively. "Based on valuation results as well as the business outlook, we maintain our buying recommendation for VHM with a target price of VND105,600/share, 26% higher than the closing price on December 20, 2021.

In terms of NLG, business results would maintain a strong growth momentum in the coming years.KB Securities estimated NLG's earnings at VND1,441 billion (69% YoY) on revenue of VND5,109 billion (130% YoY) for 2021 and earnings at VND1,809 billion (26% YoY) on revenue of VND7,108 billion (39% YoY) for 2022. Based on valuation results and business outlook, it recommends holding NLG shares with a target price of VND61,200/share, 2% lower than the closing price on December 20, 2021.